Merger to form Europe’s largest drugmaker

26 April 2004

BERLIN – The merger by France’s two biggest drugmakers, Aventis SA and Sanofi Synthelabo SA has raised questions about government promotion of national industrial champions and the prospects for European cross-border business consolidation.

The tensions unleashed by Sanofi’s rancorous takeover battle or its French-German rival Aventis were heightened by the French Government’s intervention in the corporate manoeuvrings with Paris demanding a French solution to the Strasbourg-based company’s future.

Faced with an unwelcome EUR 45.9 billion stock-and-cash bid from the smaller Paris-based Sanofi, Aventis had sought to build up Swiss-based competitor Novartis AG as a possible white knight that might have resulted in the formation of a new merged European drugs giant.

After Aventis firmly rejected Sanofi’s original bid, the group increased its offer to EUR 55.3 billion paving the way for what could be Europe’s biggest pharmaceutical group and the world’s third largest drugs company. The merger still requires European Union approval.

But the French government had sought an all-French deal between Aventis and Sanofi-Synthelabo, with French Prime Minister Jean-Pierre Raffarin arguing that Paris’ ability to access vaccines in the case of a bioterror attack would be hindered if Aventis were to fall into foreign hands.

Industry analysts say that Paris’ attempts to orchestra the new merged Aventis-Sanofi group was also aimed at building up a drugs company that could compete with US pharmaceutical powerhouses.

As further sign of the friction caused by Paris’ campaign to ensure a French solution to the takeover battle, German Chancellor Gerhard Schroeder’s Social Democrat-led government made it clear that it saw no role for government in merger battles.

“The German Government is taking a neutral stance,” Schroeder’s spokesman Bela Ander said Monday. “It is a business decision,” he said.

This is in marked contrast to previous moves by Schroeder to try to intervene in business decisions as a way of shoring up jobs.

Ander went on to say, however, that Berlin would monitor the merger and said that the government expected Aventis’ research and development arm in Frankfurt would be strengthened by the fusion.

The three-month takeover battle for Aventis appeared to have come to a close late last week after French Finance Minister Nicolas Sarkozy arranged a meeting between Aventis chief Igor Landau and his counterpart at Sanofi, Jean-Francois Dehecq.

It was the first meeting between the two chief executives since Sanofi launched its hostile takeover bid in January. Dehecq is to head up the new merged company.

The takeover battle for Aventis comes as pressure for consolidation in the global drugs industry continues to grow with the industry having been engulfed by a wave of mergers in recent years.

A merger formed Aventis itself five years ago between France’s Rhone-Poulenc SA and Germany’s Hoechst AG.

But the fight over Aventis also renews questions about the prospects of political intervention in other European merger battles to head off big national companies from finding themselves with new foreign owners.

In particular, this includes Germany’s biggest bank Deutsche Bank AG with growing expectations that the end of a court case in the coming weeks involving the bank’s chief Josef Ackermann could result in the bank launching merger talks.

Market rumours have linked Deutsche to several of the world’s biggest non-German banks. Exploratory talks have reportedly been held with U.S. financial powerhouse Citigroup.

The merger between Germany’s biggest bank and a foreign rival might test Berlin’s resolve to remain neutral in business decisions.

Novartis, which last year failed in a bid to acquire Swiss rival Roche Holding AG, said on the weekend that it dropped out the takeover battle France’s “strong intervention” in favour of Sanofi.

While analysts said that a marriage between Aventis and Sanofi would result in savings of about EUR 1.6 billion, they estimated that a linkup between Novartis and Aventis could produce savings of almost double that.

But with unemployment in France at record levels, unions added to the pressure on the French government to intervene in the takeover by claiming that a merger with Novartis would result in the loss of 17,000 jobs and between 10,000 and 12,000 by a merger with Sanofi.